Strategic Procurement in SCM
MBA(36-D)-Open (A)
Course Code: BA 5266
Week-9
Supplier Evaluation Process
What is Supplier Evaluation?
Supplier evaluation is the process of evaluating and approving potential
suppliers. It can also be used to evaluate existing suppliers to measure and
monitor their performance that will lead to increased value and risk
mitigation. (CIPS)
• The evaluation of relationships rather than vendors/suppliers,
• Both participants in the trading process, “buyer and seller”, might derive
the best benefit by seeking to solve the shared problem.
• The extent of the suppliers’ evaluation depends on the volume and value of
possible expenditure.
• The evaluation of existing or potential suppliers is a continuing process in
procurement departments.
Why is Supplier Evaluation Important?
Evaluating suppliers is a fundamental activity within the
procurement team of every organisation.
1. Well-conducted supplier evaluation can contribute to competency
development,
2. Supplier evaluation is an essential element that enables organisations to
achieve a competitive advantage,
3. Supplier evaluation is a good way of uncovering and removing hidden
waste and cost in the supply chain,
It’s important for suppliers to meet certain standards, to improve their
own operations and to ensure they meet your organisation's
expectations.
Supplier Evaluation Method
Selecting the right supplier evaluation method ensures alignment with
organizational goals, balancing cost, quality, and risk.
Three Common Methods:
1. Lowest Price: This method selects suppliers purely based on the lowest
bid price for the required goods or services.
2. Lowest Total Cost of Ownership (TCO): This method evaluates suppliers
based on the total cost over the product/service lifecycle, including
purchase price, maintenance, operation, and disposal.
3. Weighted Scoring: This method assigns weights to multiple evaluation
criteria (cost, quality, reliability) and calculates a total score for each
supplier.
Lowest Price Method
Selects the supplier offering the lowest upfront price for goods or
services, with minimal consideration of other factors.
How It Works:
• Focuses solely on price bids.
• Often used in competitive bidding (RFQ processes).
When to Use:
• When the product/service is standardized or commoditized.
• When quality variations are minimal.
• When cost savings are the top priority.
• Government contracts (where price is legally mandated).
Total Cost of Ownership (TCO) Method
Evaluates suppliers based on all costs associated with a product or service over
its lifecycle, including acquisition, operation, maintenance, and disposal.
How It Works:
Factors in direct and indirect costs:
• Acquisition: Purchase price, logistics, tariffs. (Price & Landed Cost)
• Operation: Energy consumption, labor, training. (Operational Cost, Maintenance Contracts)
• End-of-Life: Disposal, recycling, environmental impact. (End-of-Life Cycle)
When to Use:
• When long-term cost efficiency is important.
• When products require ongoing maintenance, training, or additional expenses.
• When hidden costs (downtime, defects, shipping) significantly impact the business.
Weighted Scoring Method
Assigns scores to suppliers based on predefined criteria (quality, cost,
delivery), weighted by their importance to the organization.
How It Works:
• Define evaluation criteria (quality = 40%, cost = 30%, delivery = 20%, sustainability = 10%).
• Score each supplier (1–5 scale) for each criterion.
• Multiply scores by weights and sum for a total score.
When to Use:
• When multiple factors influence supplier selection.
• When procurement decisions involve strategic partnerships.
• When transparency and objectivity are important in decision-making
Pros & Cons of Methods
Lowest Price Method Total Cost of Ownership (TCO) Weighted Scoring Method
Method
Pros: Pros:
Pros:
• Simple and fast to implement. • Balances quantitative and
• Holistic view of long-term costs. qualitative factors
• Transparent for comparing bids.
• Reduces risks of hidden expenses • Customizable to organizational
• Reduces short-term spending. Encourages sustainable priorities.
procurement
• Promotes transparency in decision-
Risks/ Cons: making.
• Ignores hidden costs (quality Risk/ Cons:
issues, delivery delays, • Complex to calculate (requires Risk/ Cons:
maintenance). detailed data).
• Subjectivity in scoring and
• Risks poor quality or supplier • Time-consuming compared to weighting.
reliability. the lowest-price models.
• Requires clear criteria and
• May harm long-term • May still overlook non-financial stakeholder alignment.
relationships with suppliers. factors.
• May not capture unforeseen risks
Evaluation Methods Comparison
Method Focus Complexity Strengths Weaknesses
Ignores quality,
Lowest Price Short-term cost Low Simplicity, speed
sustainability, risk
Long-term lifecycle Comprehensive Data-intensive,
Lowest TCO High
cost cost analysis time-consuming
Flexibility,
Multi-criteria Subjective scoring,
Weighted Scoring Moderate alignment with
balance calibration risks
strategy
The Key Takeaways
• Lowest Price: Best for simple, low-risk purchases where price is the
sole priority.
• Lowest TCO: Ideal for high-value, long-term investments with
significant operational costs.
• Weighted Scoring: Optimal for strategic suppliers where quality,
innovation, or ethics are critical.
• Hybrid Approach: Many organizations combine methods (e.g., use
TCO for cost analysis and weighted scoring for non-financial factors)
to balance short-term savings with long-term value
The Carter’s 10Cs Supplier Appraisal Model
1. Competency
2. Capacity
3. Consistency
4. Control of process
5. Cost/price
6. Commitment to quality
7. Cash/finances
8. Clean
9. Culture and relationships
10. Communications
Supplier Appraisal Reliability
• High: evidence is complete, verified, current, comprehensive,
observed, measured, provided by third party, independent.
• Satisfactory: almost complete, verified, some observation,
contribution of desk research and observation, some use of past
records.
• Not reliable: reliance on past records, lack of observation, totally
based upon desk research, not complete, some verification.
Figure 8.1: Supplier Evaluation/ Appraisal
Appraisal for Existing Vs New Suppliers
Factor Supplier Evaluation for Selection
Supplier Evaluation (Ongoing)
(New Suppliers)
Assess existing supplier
Purpose Select the best new supplier
performance
Focus Monitoring & improvement Risk assessment & capability
When Used? Ongoing performance checks Before signing a contract
Data Sources Historical performance data Supplier proposals & audits
Methods Used KPIs, scorecards, audits RFP, site visits, trial orders
Key Risk Supplier complacency Choosing an unreliable supplier
Tender Management
Tender Management is the end-to-end process of planning, organizing,
and overseeing the procurement of goods, services, or projects through
a formal bidding process (tenders).
Phases of Tender Management
1. Pre-Tender Phase
2. Tender Launch/ Issue Tender Documents
3. Bid Submission & Evaluation
4. Award & Contracting
5. Post-Award Management
1. Pre-Tender Phase
Needs Assessment:
• Analyse and understand the need with Internal Stakeholders.
• Define project scope, budget, timelines, and technical specifications.
Documents Development
• Develop the tender documents, including a detailed breakdown of the Prices,
volume, service level agreement (SLA), evaluation criteria, Timelines, and
terms and conditions.
• Create a detailed specification to ensure consistency on pricing, product
quality and operations functionality
• Distinguish the specification between product requirements and preferences.
• Building intolerances for suppliers to adhere to; specified in terms of
percentage, quantity, or time.
2. Issue Tender Documents
• Send an Invitation to Tender (ITT) and Request for Proposal (RFP) for
selected suppliers to participate/ Open Tender,
• Include the detailed specification and documentation developed
around your organisation’s requirements, along with clear timescales
to respond.
• Advertising: Publish the tender on public portals (government
websites), industry platforms, or via direct invitations.
• Bidder Briefing: Host Q&A sessions to clarify requirements.
3. Bid/ tender evaluation and validation
Receipt of Bids: Manage deadlines and ensure compliance with
submission formats (digital or physical).
Key Factors in Evaluation:
• Ensure your tender evaluation is structured, disciplined and
transparent.
• Consider whole life costs, including the removal or disposal of a
product, if applicable
• Post-tender negotiation will often take place, along with reference,
credit checks and supplier visits.
• Usethe preselected method for evaluation
Tender Evaluation
Technical assessment Financial assessment
• Technical Specifications are responded • All costs are covered in the price offered
completely and accurately, • Currency conversions are correct at the
• Any alternatives offered must be assessed time
individually, • Alternative costings for alternative supply
• Check with the tender that the production methods are identified
capacity claimed is available • Costs compare with, or are lower than,
• Physical inspection of the production site if estimate costs
necessary • Any extra costs are identified
• Check that any quotes for spares are • Discounts are offered where appropriate
compatible with the main bid
• Consider whole life costs, including de- • Retentions are identified
commissioning, removal, or disposal • Terms of payment are included
• Costs of spares are included in the offer
4. Contract Award
• Ensure both parties to fully understand their obligations and key
criteria.
• Award criteria offers agreed terms and conditions to minimize
contractual risks and exposure when doing business
• Sets out clear timescales for both parties
• Debriefing: Provide feedback to unsuccessful bidders.
5. Post-Award Management/ Implementation
• Performance Monitoring: Track milestones, quality, and adherence to
timelines. (Gantt Chart)
• Risk Mitigation: Address delays, disputes, or scope changes.
• Closure: Finalize deliverables, payments, and document lessons
learned.